Economic development, economic development, economic development—such a common phrase in the news media. The Governor wants it; local communities compete with each other for it; and your tax dollars are paying for it. But what is the real cost?
Various large South Dakota businesses received approximately $89,000,000 in tax refunds between July 1, 1996 and March 31, 2012. Some of that went to wind farms and ethanol plants. Would they have been able to build without the tax break? I don’t know. I do know that those industries brought some very good jobs and an excellent tax base to their areas. On the other hand, the Keystone pipeline received a tax break also. I don’t understand why. They had to go through South Dakota. They didn’t need to be lured here.
There are programs to help existing small businesses grow and train workers: the REDI (Revolving Economic Development and Initiative) fund for business startup or expansion; APEX (Agriculture Processing and Export) loan; MicroLOAN SD (fixed asset loans for small businesses), South Dakota Works (working capital loans); and Value-Added Ag Subfund. There is no help for young entrepreneurs wanting to purchase a successful business.
The largest percentage of economic development money is spent on large companies through tax incentives or grants. This is where things get a bit sticky. How much does South Dakota spend to get a business to locate here? No one really knows. The Governor offered at least $5,000,000 to Bel Foods to build a facility in Brookings, and the community itself offered millions in incentives. That’s just one example. Here’s the issue: there is no accountability for these incentives; nor is there any proof, anywhere, that these incentives really help.
South Dakota brags of its business climate: no corporate income tax, one of the lowest per capita tax burdens in the country, and lots of space. But there is the issue of contractors’ excise tax. It’s a tax of 2.041% that is added to every construction project—from a $1000 shed to a multi-million dollar factory. No other state has it. I’ve been trying to figure out a way to get rid of it, but have come up with no solution, so it’s nice to see it being discussed by legislators. Other states don’t charge sales tax on labor or service fees. The problem is that it brings in over $90,000,000 per year to our state. With what do we replace it? Some legislators are looking at a corporate income tax or maybe a tax on farm land sales. Now that’s going to raise an eyebrow or two!
There was a sales tax task force created in 2011. It was a waste of time. South Dakota has more sales tax exemptions than you can shake a stick at; but of course, no one wants his exemption to be lifted. Maybe it’s time to look at that again. Minnesota is—that could be interesting also.
Another issue is that we have no work force. Numerous companies have not moved here because South Dakota cannot supply the work force that it needs to produce, manufacture, or research its product. This is where our educational system could help, if it had the money. Education is the best economic development a state can have in addition to buying local. I wish our economic development leaders would understand that.
South Dakota is actively pursuing large dairies and other types of CAFO’s, concentrated animal feeding operations. A 5000-5500 hog confinement facility is being proposed for my area, and I’m sure there are dairy facilities being planned up and down the I-29 corridor. The cheese factories, including Bel in Brookings, need milk, and that means cows. I’m sure there is going to be legislation proposed this year concerning CAFO’s. It’s going to get loud, and maybe a bit stinky. People need to do a lot of thinking here. What price economic development? Is it worth our environment? Oops, got a little off track. I need to do some thinking, too.
Have a great day and Happy New Year.
Thanks and take care.
Kathy Tyler
rep.tyler@state.sd.us
facebook.com/tylerfordistrict4
kathytyler.wordpress.com
605.237.0228
Kathy's Corner 